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Thursday, May 08, 2008

having your cake and eating it

Eurofanatic Indie hack Jeremy Warner makes (or rather repeats) an intriguing argument in his column today.

Space constraints prevent me from repeating the many positives Britain has derived from enlargement that were aired at yesterday's "Business for New Europe" conference, but here's an interesting thought from one of the speakers, Lucy Neville-Rolfe, the corporate and legal affairs director at Tesco.

Just as the influx of Poles and other Eastern European workers helped fill shortages in the labour force during the upswing, they are now acting as a useful shock absorber for the labour market as the economy slows, with many deciding to return home to the higher growth eco-nomies from which they came. With luck, it may mean Britain can survive more difficult times without the usual, steep rise in unemployment.

Er... doesn't this kind of contradict the Governments previous argument that migration from eastern Europe doesn't cause unemployment? If people going home would "create" jobs then doesn't that rather suggest that them turning up probably "takes" jobs away from people here? You can't have it both ways.

Obviously if a lot of people turn up in a short space of time that is likely to create some frictional unemployment, but with a flexible economy that should clear pretty quickly. There is not a set number of jobs in the UK economy. Indeed, most migrants come here to do a specific job.

Post migration the labour market will clear with a slightly lower wage rate for unskilled workers who face more competition. The government have never really faced up to that. On the one hand the Government want to say that it increased migration hasn't reduced wages. On the other hand they say migration has “held down inflation”. Again - which is it to be?

One duff argument in the migration debate is that we "need" immigration so that immigrants will do the jobs that people in Britain won't do. This is nonsense. The UK has 7 million economically inactive people, and with a flexible economy wages will rise to the point where people will do the job. Are Brits too good to clean the bog, or take out the bins, or work on a farm? Are these jobs “only fit for Poles”? It’s a pretty dodgy argument that would probably sit better in the rhetoric of the hard right, than the liberal eeejuts that normally make this argument.

The bottom line is that the answer to unemployment is a flexible economy. The answer to low wages is to transform our utterly useless education system.

There is an argument that says migration is good because its a stealthy way to make the economy more flexible. But this is fundamentally bad politics because (a) making the economy more flexible by stealth through immigration is likely to be unpopular in the long term and (b) it discourages real reform - why sort out education or labour market regulation if we can just import skills, and circumvent labour market rules. NB India are desperately trying to phase out their "informal sector" - are we seriously trying to create one in the UK?

In the long run the growth of the economy is all about productivity and the accumulation of knowledge. It is pretty clear which policies promote growth (low tax, low regulation, effective public spending) and the real challenge is for politicians to pursue these goals in a gutsy way.

Migration probably has a marginal impact either way (and all EU migration is only a third of the total anyway). GDP per capita is probably initially lower because the same capital and land stock is divided among more people, and the people arriving are not that highly skilled or wealthy. On the other hand they are clearly entrepreneurial enough to move countries and probably working more hours than the average person in the UK.

Jeremy Warner thinks both it was great that people from the A8 came to the UK, and also it's just great that they are now going away (are they? - no-one knows). The truth, as the Lords recently pointed out, is that neither will really make much difference.

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